Incentives for economic zones

The government is set to allow Chinese and Japanese investors to establish their own economic zones in the country. During her recent visits to China and Japan, Prime Minister Sheikh Hasina discussed the matter with her counterparts threadbare. Now the authorities are taking follow-up actions on the basis discussions held in the countries in question.

The government is planning to provide 8,000 acres of land in Chittagong to Japanese investors for setting up a special economic zone (SEZ) as pledged by the PM. Providing land to Chinese investors for setting up economic zone (EZ) is also under active consideration. The Chinese investors may be given similar amount of land, according to reports.

The government has already finalised the private economic zone policy, allowing individuals to set up such zones across the country. Several numbers of EZs from government, private sector and foreigners are likely to be set up in the near future.

The World Bank has recently proposed that the government should enable the development of 40,000 acres of land for creation of new industrial zones across the country to facilitate both foreign and local investment.

The government is offering a slew of incentives, including tax holiday for economic zones, to foster investment in the country, which can spur higher economic growth. The planned incentives will be extended in the forms of tax holiday, duty waiver, and capital subsidy.

Duty-free import facility of raw materials, construction materials and capital machinery for the investors of EZs is also being offered. The investors will also be given exemption from dividend tax, the facility of full repatriation of capital and dividend, quota-less foreign direct investment and sale of 100 per cent backward linkage raw-materials and accessories to export-oriented industries in domestic tariff areas.

Besides, the economic zone investors will also be allowed to do sub-contracting business with industrial units in domestic tariff area. They will be offered exemption from 50 per cent stamp duty and registration fees for registration of leasehold land or factory space.

The Prime Minister's Office (PMO), the Bangladesh Economic Zones Authority (BEZA), the National Board of Revenue (NBR), the Finance Division, Bangladesh Bank, Foreign Ministry, the Board of Investment (BoI), Public-Private Partnership (PPP) office and the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) will work in implementing the incentive packages for the investors.

In fact, foreign investors are interested to invest in the country due to lower wage structure, despite various limitations. In 2012, the Bangladesh Economic Zones Authority (BEZA) governing board decided to establish five EZs in the country. Proposed locations of the zones are Mongla in Bagerhat, Sirajganj, Rajshahi, Anwara and Mirersarai in Chittagong and Moulvibazar.

On its part, the government needs to overcome challenges in infrastructure, business environment and trade restrictions by establishing governance in order to attract more Foreign Direct Investment (FDI) in the country.

In fact, underdeveloped infrastructure, shortage of power and energy, procedural bottlenecks, lack of proper regulatory framework and political uncertainty were identified as major challenges to FDI in the country.

In Bangladesh, a number of impediments have acted as bottlenecks in the way of setting up economic zones. Problems associated with poor infrastructure and lengthy licensing procedures have derailed plans to establish economic zones in the past. One glaring example is the Korean export processing zone (KEPZ).

Youngone Corporation, one of the largest Korean conglomerates, procured 2500 acres of land in Chittagong to build an EPZ in the mid-'90s. The licensing procedure took almost eight years to complete. The lengthy procedure associated with the obtaining of licences from various government authorities and red tapism involved in procuring land, getting electricity and gas supplies have been nightmarish. The KEPZ experience is a prime example of why Bangladesh lags behind the rest of Asia in setting up special economic zones to facilitate investment and job creation.

Of late, Indian investors requested Bangladesh twice for granting them a SEZ for setting up industries of their own. Bangladesh agreed to give it. Besides giving land, Bangladesh government assured India of considering its demand for allowing their factories in Bangladesh to sell 25 per cent of their products in the local market. At present, the investors can sell 20 per cent of such products in Bangladesh market.

Given the current context, it is, however, not an easy task to find land exclusively for an economic zone. Due to utter mismatch between the rising population and fixed land, the probability of getting land for the purpose is very difficult. Yet, the government can manage to find land in some remote parts of the country where the overseas investors are unwilling to go.

Most of the investors want land nearby the capital city for their own interest. Besides land, problems like scarcity of power and gas supply, absence of necessary infrastructure and utility services are discouraging the overseas entrepreneurs to invest in Bangladesh in a big way.

For Bangladesh, good relations with China, India and Japan are very crucial from strategic, economic and geopolitical perspectives. The sooner the policymakers realise and work towards this, the better it will be for the country's future.

szkhan@dhaka.net